Education Department suspends student loan collection action until November
There is good news for student borrowers struggling to repay their student loan.
Here’s what you need to know.
The US Department of Education said it would end the collection of tax refunds, Social Security, child tax credits and other government payments to pay off defaulted student loans. As first reported by CNBC, the moratorium will now be extended from May to November. It’s a big win for student borrowers, especially financially vulnerable borrowers who are concerned about the end of temporary student loan relief on May 1, 2022. (Here is President Joe Biden’s position on student loan forgiveness).
According to the latest student loan debt statistics, there are less than 9 million borrowers in default and delinquent on student loans. Borrowers who are in default on their student loan have not paid their student loan for at least 270 days. By comparison, borrowers in student loan default have not repaid their student loans for at least 90 days. Since March 2020, when Congress passed historic student loan relief under the CARES Act, federal borrowers have enjoyed the following benefits:
- no mandatory federal student loan payments;
- 0% interest rate; and
- no collection of defaulted student loans
This announcement now means that student borrowers will not be subject to collection of defaulted student loans for another six months through the US Treasury clearing program. (That said, here’s who won’t get student loan forgiveness). However, federal student loan repayments and a return to regular interest rates will resume on May 1. Advocates for student loan relief, including Sen. Elizabeth Warren (D-MA), are lobbying President Joe Biden to extend student loan relief beyond May. (Will student loan relief be extended through 2023?).
What this means for your student loans
Biden and the Department of Education have focused on a smooth transition to student loan repayment, especially for financially vulnerable borrowers. (Biden canceled $15 billion in student loans). This has included efforts to extend a grace period for late payments, not reporting overdue borrowers to credit bureaus, and contacting borrowers ahead of time to restart student loan repayments, among other efforts. Interestingly, the Ministry of Education decided to extend one provision of student loan relief (collection of defaulted student loans), while leaving the other two (repayment of student loan repayments and reset of accrued interest) expire on May 1. (Biden should end student loan relief). To date, there have been no announcements regarding an extension of any further student loan relief, so borrowers should expect student loan relief to end soon. This should signal you to start developing a game plan for paying off your student loans.
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